Netflix to Boost Program Spending in 2026, Crimping Profit 

21:33How are we going to buy or take it? And how are the European countries going to finance us? Are we going to re-tariff them? And it seems crazy, except that things have a way of happening which people didn't think would happen. So you have to back away and de-risk a bit. Japan, I don't know if that necessarily came out of the blue, but we're now faced with that, where the bond markets become unanchored because there are going to be snap elections and everyone's going to compete for fiscal stimulus. If we're looking at the bond markets and assessing all of these things, it feels that the fiscal austerity, which everyone embraced after the great financial crisis, is out the window.

22:23It's now borrow and spend. There seems to be plenty of capital around to finance it. And a backup in yield may not be so bad. So yeah, things are a bit chaotic and the markets do feel a bit panicked. So Bob, you know there's chaos, there's chaotic moves, there's de-risking and then there's de-risking.

22:42Carol Massar:So is this like a short-term think until we really figure out how much of what the president is saying is just rhetoric or the first negotiating ploy or something that sticks around longer and impacts the investment landscape longer? It's hard to know. I would have liked to have heard something at one o 'clock. Instead, it's sounding like a domestic victory lap, then board Air Force One and head to Davos and deal with a whole international array of problems. And my guess is the administration is going to put everyone on their heels and negotiate the best deal, whether it's Greenland, whether it's Venezuela, whether it's tariffs, whether it's with China, who knows?

23:29Carol Massar:Should the president be taking a victory lap based on what you've seen in the past year? If I'm purely objective and sit here in January and say, we're heading into 2026 with some momentum. We closed out the fourth quarter pretty strong. We're expecting somewhere either side of two and a half percent for GDP and inflation in the U.S. The U.S. is collecting some tariffs, the effective rates about 16%. So that's a source of revenue. The markets are at highs. And that momentum looks like it's going to continue. So, yeah, I think you can claim that if you want to. A chance, though, that the bond market and, you know, perhaps even the equity market are overreacting.

24:21that the president, you know, for much of last year, there was the taco trade, the idea that what the president said wasn't necessarily what ended up happening. And I think, you know, that so-called Liberation Day tariffs are a perfect example of that. We're entitled to overreact. I think we've been pretty well behaved for a while. Volatility metrics have been abnormally low. We're allowed to throw our toys out of the pram every so often. I think this is a message from market participants to the administration. We can only go so far. And they've got to figure out where the line is. I think what Besson forgot to include was, yeah, the market had a fit in April, and then they backed off of a lot of things, and then calm ensued.

25:09We need to hear some of the same kinds of things. We should note the president is still making comments at the press conference. We'll go back Back to it when he does take questions from the press. You can see it right there on the screen. Also check it out on LiveGo on the Bloomberg terminal. You mentioned the reaction back in April. I believe the technical term the president used was the bond market got a bit yippee. Is the bond market yippee now? Not yet. If you look at Japan, Japan has a whole host of domestic things to deal with. So that's become unanchored. When I look at the U.S. market, yeah, we backed up a little bit.

25:46But you know what? We've got a Fed funds rate at about three and five-eighths. The two years within touching distance of that, you've got somewhat of a normal steepness to the yield curve from Fed funds to twos to the 10-year and the 30-year. It all feels pretty orderly now, a bit of a pause. So I actually think things feel okay.

26:11Carol Massar:Any time we, I feel like, Bob, we pull up geopolitics and people are like, well, who holds U.S. treasuries? And we've got a story on the Bloomberg that talks about European countries holding trillions of dollars of U.S. bonds and stocks, some of which sit with public sector funds. And so there's, you know, the speculation that could our allies or even folks like China or something like sell U.S. debt? Is there really any alternative into U.S. debt realistically? No, there is not. And we did this about a year ago. We went through this in March, April, May. We spent a lot of time talking to our clients, particularly our non-U.S.

26:49clients. They looked at everything and came back to. When you look at the U.S. debt markets, which includes governments, but it's corporates, it's securitized. No other markets have the depth and the breadth. They have confidence in the country. They're not willing to abandon it. They see the presidency as two two-year terms when you throw in the midterm election elections. So they're willing to ride through it. I don't think there will be wholesale selling of U.S. Treasury debt. So you're referring to the Danish pension fund, academic or pension.

27:25Carol Massar:Well, and that's a small, but I just in general, like I think about we've talked about it in terms of China. or just any, you know, that this is a great lever that foreign investors or foreign governments could pull against the U.S. But the reality is they're not likely to because there kind of is no alternative. We had a lot of very large non-U.S. clients look at alternatives and line up plans. If we were to sell this, this is where we would go. And they paused putting more money into U.S. bonds, but they didn't take any out. And by the end of the summer, they were putting money back in again.

28:04We're speaking with Bob Michael, chief investment officer and head of the global fixed income currency and commodities group for JP Morgan Asset Management. The president's still taking, still speaking at the White House. He does. We do expect him to take questions, too, in just a little while. Back to this pension, because Anders Sheldy cited, this is the fund's chief investment officer, cited Trump's talk of taking over Greenland, concerns about fiscal discipline and a weaker dollar for reasons for the decision. You don't buy the fiscal discipline and the weaker dollar part of this. You think this is just political.

28:36Where is there fiscal discipline now? It's hard to find it. Go to the old stalwarts. Germany, not there. Look at what Japan could and couldn't do. That seems to have been abandoned now. The US, for sure, will see who the next Fed chair is, but it sure ain't going to be the next Paul Volcker walking in. So I think fiscal discipline is a thing of the past, and there is a feeling that deficits can be financed, and Japan is kind of telling us you can get to 300 % and life's still good.

29:12Carol Massar:So when do we pay the piper on this global lack of fiscal discipline? I think about Andrew Ross Sorkin, who was just on to talk about his book 1929, and we talked about crises in particular or in general, and that leverage and debt, right? These are the things that get us into trouble, whether we're an individual, a company, or a country, or can. So is that potentially the next crisis, just the lack of fiscal discipline globally, or do we just kind of continue to go along here? So I read 1929. It was very engrossing. I don't see the problems that existed then here today. I don't see the rampant leverage throughout the system, which is becoming problematic.

29:54It can't be served as, it's being written down.

29:58Carol Massar:Even on a government or sovereign level. Yeah, it's not happening at the government or sovereign level. And that new tool called QE allows that to perpetuate. But that's the point. I think about years ago, I remember not doing an interview, a business news interview or markets interview without talking up about the U.S. government debt. And then it went away. And now we are back again. So, like, I guess I think we kind of continue to try and find out when is it really a problem? Certainly as rates go higher, it becomes more expensive to service, certainly here in the U.S. But I'm just wondering, like, when...

30:33I think when it gets thrown away. I started in the business in 81. I worked through the twin deficits. I was taught the U.S. will never be allowed to finance itself below 10 % again. And we promptly dropped from 16 % to three-tenths of a percent. And in the Clinton era, suddenly, you know, the deficit was gone. We look at where the money is being spent. And we may not always agree where it's being spent, but it does create some productivity. We talk to all the municipalities that are accessing the various programs they can. They're actually going in, taking capital. They're hiring people. They're consuming resources.

31:17And they're investing in their townships or their states or their cities or whatever it can be. Ultimately, that generates activity that gets taxed. And I think that's what we saw in the late 80s into the early 90s. Last question. I'm going to make you push ahead to our conversation with Robert Kaplan, vice chair at Goldman. And we're going to be hearing from him in just a few minutes on the Fed. Polymarket has Kevin Warsh as the favorite. for the nomination. In fact, Rick Reeder is now number two, which is interesting to see. Who has the bond market priced in as the next Fed chair? I don't think the bond market has a great idea.

32:00Reeder's number two for me. I've known him for close to 40 years. I think he'd be an excellent Fed chair. I think he'd be somebody very different. Let's get a true bond markets practitioner in there who's had to live with the aftermath of Fed decisions. So I'm certainly a supporter of his, but he's number two behind Besant is still my number one. I think the president is still stalling and trying to negotiate with Besant. I don't see Warsh too hawkish. Hassett's got to be removed because of the DOJ. And Waller, I don't know that the administration feels they can control Waller. So, you know, Rick is the shining knight that comes in out of left field.

32:54Smart guy will do the right thing, but I still think it's Besson. Was not expecting to hear that.

32:59Carol Massar:So right thing, whether it's Besson or Reader or whomever, will be independent? Or that depends? I've never fully believed that they're independent because they're political appointees. So they get appointed for their core views. I believe when they're in office that they always try to do the best thing. But some believe that fiscal austerity is the best policy. And other believes that a lower cost of funding and economic activity and monetarism will help stimulate the economy. That discussion around the table, right? It means something, right? And all those different voices. Your voice always means a lot to us.

33:39Carol Massar:Thank you so much. Really appreciate it. Happy to be here. Great day for it. Exactly. We thought that on our planning call. We're like, we're so glad he's here today. Bob Michael, be well. We really appreciate it. Chief Investment Officer, Head of Global Fixed Income Currency and Commodities over at J.P. Morgan Asset Management. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

34:01Hello, hello. Hello, I'm Malcolm Gladwell, host of the podcast Smart Talks with IBM. I recently sat down with IBM's chairman and CEO, Arvind Krishna, and I asked him, how can companies use AI to its fullest potential to create smarter business?

34:17Carol Massar:My one advice to them, pick areas you can scale. Don't pick the shiny little toys on the side. For example? If anybody has more than 10 % of what they had for customer service 10 years ago, they're already five years behind. If anybody is not using AI to make their developers who write software 30 % more productive today with the goal of being 70 % more productive. Yeah. So we are not asking our clients to be the first experiment on it. We say, you can leverage what we did. We're happy to bring out all our learnings, including what needs to change in the process, because the biggest change is not technology.

35:03It's getting people to accept that there's a different way to do things.

35:08Carol Massar:To listen to the full conversation, visit ibm.com slash smarttalks.

35:18Carol Massar:If you follow markets, you know the value of long-term thinking. You plan, you diversify, you prepare for volatility. But even the best strategies can't prevent every bad day. For more than 75 years, Cincinnati Insurance has helped individuals and businesses navigate tough moments with expertise, personal attention, and independent agents who focus on relationships, not transactions. The Cincinnati Insurance Companies. Let them make your bad day better. Find an agent at c-i-n-f-i-n dot com.

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36:58Carol Massar:Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. Hey, one of the stories, and not stories, but reality in terms of the global trade, borrowers venturing back into Europe's marketplace for debt today, though some companies staying away amid the tensions with the U.S. over Greenland. And that's after we saw global bond sales having their biggest ever start to a year as borrowers of every stripe seized on investors' insatiable appetite for risk. U.S. alone, that first full week of the year, was one of the busiest for U.S.

37:33Carol Massar:corporate debt sales on record. And risk premiums we saw staying low even amid heavy issuance. But the amount of bonds teetering on the brink of junk surging last year, that's according to JPMorgan Chase. They put this out a little bit more than a week ago, at least, and we included it in our reporting. So we want to kind of dig a little bit deeper into this market. It's time now for our weekly Women, Money, and Power, where we speak with some of the most influential women from across the business world. We've got Joanna Gallegos with us, co-founder of Bond Blocks. It's the ETF issuer focused on fixed income, more than$7 billion in assets under management.

38:04We spent a lot of time in sort of the first 45 minutes of the program today talking about what's happening overseas and U.S. Treasury market reaction. I want to focus a little bit on corporate credit and the outlook in 2026. Carol mentioned some of the sort of the busyness that we've seen already this year. But what is the outlook on corporate credit right now?

38:25Carol Massar:Yeah, I think we would say it's the same red thread we've seen over the last three years in corporate credit. And that is the resiliency of American companies and the debt that they're issuing. Even all the way down into high yields, you're seeing lower or average default rates. people can count on the fundamentals of these firms year over year. So these companies have started pre-pandemic with really good foundations in their fundamentals, and that's continued. So the resiliency of the economy, the strength is actually the story when you see those tight spreads. What we focus on at Bond Blocks is your ability to trade or your ability to access different points of income for risk across all the asset classes and fixed income.

39:10Carol Massar:Well, talk to us about flows in-out that you've seen maybe as you wrapped up the end of last year and then what you've seen as we kicked off 2026 as we kid. Was it Mike who said that folks have been saying it's like already felt like a decade here in 2026? So give us a little comparison. Yeah, I think 2025, you know, more record years in my space, in my industry, ETFs are an incredible tool for people to access fixed income markets. It just continues to grow. But where did you see most of the money coming in last year? And then what's changing this year? You're still seeing a ton of strength. It's sort of a familiar story.

39:42Carol Massar:A ton of strength in shorter-duration assets. People look for the most attractive yield and risk combination they can. And shorter duration has been a huge category for ETFs, and it continues to be so. Really strong growth in corporates. I think your previous two commentators talked about how, you know, towards the middle and the end of the year, people were still looking at the strength of corporate debt. In ETFs, it was the same story. And then we're seeing on our desk, we talk a lot to clients about public versus private debt and how to access that. So a lot of conversations, a lot of interest in how to complement existing bond portfolios with other sources of yield or looking for a way to enhance yield.

40:28On the public side of the 10-year yield getting our attention at least today, 429, where it is right now, you were shocked to see it that high.

40:37Carol Massar:Well, hitting 4.3%, right? On the 10-year, I was a little surprised. I mean, it could be 5%, but I was kind of surprised. Yeah, the recent move higher that we've seen, why has that been? I think that in all these bouts of volatility, again, as we've looked over the long term, we've seen the 10-year approach 5 % a few times. And it just represents the concern. And hopefully, structurally, the yield curve is changing towards rates being higher on the long end and shorter on the short end, lower on the short end. Which makes more sense, logically. But you kind of get, in terms of the short-term volatility that we continue to see, whether it's White House strategy, that is certainly upending.

41:14Carol Massar:Yeah, I mean, that is embedded. There's going to be, you know, the tariffs are now embedded in the outlook in 2026 for investors. there's volatility is an always on now. And in the equity markets, what we like to call people's attention to is that a year like last year, if you aren't looking at fixed income, you aren't looking at bonds and how to add more income into your portfolios to offset volatility, like you're missing out on these huge cushions. Which was like, I feel like it's been the talk for the last year or so or a couple of years, right? Where you think about what you can get on a US treasury, right?

41:50Carol Massar:In terms of yield and return and lock it in. And why wouldn't you, especially if you're thinking longer term? A lot of your offerings, obviously, are within the U.S. Treasury market. You guys do do some emerging market, right? Yep. What kind of activity have you seen? Right now I'm looking, I think, 5.2%. Emerging market as a category in fixed income was the best performing category across fixed income last year. So a lot of interest in dollar-denominated debt. And then also just getting non-U.S. exposure was a trade last year. So what we think is important across fixed income is just understanding how you position your bet or how you position the way you think about that.

42:28Carol Massar:And one thing about emerging market debt is it's typically very, very long dated debt. So there's an implicit two things going on. There's a relationship to the U.S. dollar. And then there's also just the duration risk in there and interest rate risk. So what we try to do is like update that space because people really do want to be shorter. And that's something that I think. So it's active in terms of the change, in terms of composition? No, it's an index fund, but it's just a shorter duration. I think that appeals to people to think about, like, how do you think about a 40-year exposure? And should you be dialing that back in these markets?

43:03Carol Massar:This is a simple one to 10-year exposure. And I think that that's what's going on in fixed income markets as they relate to equity markets in your portfolio, is now people really understand the maybe pain of interest rate risk and what can happen when rates zoom up and what you're anticipating for this year if rates continue to go down. But we think that's going to be very moderate this year. We're going to be speaking with Emily Grafeo, Bloomberg News Cross Asset Reporter, in just a few minutes. And she's written a lot about ETFs and how competitive the space is. I mean, it's just, I don't have to tell you or anyone watching or listening, there are so many ETFs out there.

43:39Do you plan to launch any new ETFs this year?

43:42Carol Massar:Yeah, we have some in registration. Where's the white space? Where are the areas that haven't been covered? Well, I think a big innovation from last year was private credit. And Emily's written a ton on private credit. I knew that's where you were going. And the reason is because ETFs tend to touch places that you need more transparency in, you want to have access in, in liquidity. And so those are the spaces that people put time and effort in in terms of innovation. And I don't think that that's done. I think that the important work in how you can access alternative yields, alternative returns, is important to ETF investors.

44:19Carol Massar:Because ETFs are used in big, broad swaths of wealth portfolios. And they need to be more precise. Markets are more precise. Modern markets are more precise. And so, having an ability to add private credit has been the talk. She's written a lot about it. Is it private credit? Is it not private credit? our private credit product PCMM was the first to give you access to middle market exposures and you know completely so it's a pure approach and that's what clients are really buzzing about when we're talking to them about what to do next. Am I right in terms of assets about 187 million? 187 million yeah and it's surprisingly like that's the leader in the category in terms of like adoption And that's sort of, I think, the next frontier is improving people's exposure to that in their portfolios and improving their perception of what is in a private credit ETF.

45:13Carol Massar:All right. Got to leave it there. Joanna, thank you so much. Joanna Goyalgos, she is co-founder at Bond Blocks. They've got about$7 billion in assets under management joining us right here in our studio. This is the Bloomberg Business Week Daily Podcast. Available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

45:53Carol Massar:If you follow markets, you know the value of long-term thinking. You plan, you diversify, you prepare for volatility. But even the best strategies can't prevent every bad day. For more than 75 years, Cincinnati Insurance has helped individuals and businesses navigate tough moments with expertise, personal attention, and independent agents who focus on relationships, not transactions. The Cincinnati Insurance Companies. Let them make your bad day better. Find an agent at CINFIN.com.

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47:24Carol Massar:perspectives for investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing. Risks include principal loss and the use of derivatives, which could increase risks and volatility. Monthly income is not guaranteed. Prepared by BlackRock Investments, LLC.